Bitcoin recovers from the depegging of USDC, the second-largest stablecoin, from the U.S. dollar.
Bitcoin (BTC) refused to let $20,000 support die for good on March 11 as the weekend opened to a battle for lost ground.
Bitcoin shakes off USDC depeg
Data from Cointelegraph Markets Pro and TradingView showed BTC/USD circling $20,200 at the time of writing.
A brief dip below the $20,000 mark overnight was short lived, and the mood appeared more stable on the day as the initial wave of panic over United States bank stability subsided.
The collapse of SVB Financial, which followed Silvergate in dealing a fresh blow to some crypto firms, nonetheless continued to play out.
At the heart of the debacle this time was Circle, the Blockchain firm which overnight revealed that it had lost part of the reserve funds for its stablecoin, USD Coin (USDC) with SVB.
USDC immediately began to slide from its U.S. dollar peg, and at the time of writing was redeemable for only $0.91, while at one point making Bitcoin worth more than $26,000 in USDC terms on major exchange Kraken.
"If USDC is only 90% backed, the equilibrium price is NOT $0.90. The equilibrium price is ZERO," Cory Klippsten, CEO of Swan Bitcoin, reacted.
"Everyone has the incentive to redeem asap for $1. You don't want to be in the last 10%, with all the money already gone."
Others believed that the situation was manageable and that USDC, the second largest stablecoin by market cap, would not fail altogether.
2/ The worst has already happened
— Ignas | DeFi Research (@DefiIgnas) March 11, 2023
We now know that 8.2% ($3.3B out of $40B) is currently stuck in SVB, but it doesn't mean that the money is gone.
As Adam pointed out, in a similar FDIC recovery process, we can expect a 94% payout.
So the damage could be around $198M USD. https://t.co/xvshlKuCmZ
In a tweet, Circle itself said that it had a further five banking partners for managing its USDC cash reserves.
Funding rates mimic FTX mood
Beyond USDC, nerves among traders predictably remained.
Related: Circle’s USDC instability causes domino effect on DAI, USDD stablecoins
Average funding rates were at their most negative since the FTX aftermath in November 2022, indicative of a strong belief that further losses could still enter for Bitcoin.
Analyzing the implications, however, commentator Tedtalksmacro argued that overwhelming bearish bias could provide fuel for a classic "short squeeze" higher on BTC/USD.
"The market remains heavily short here, still. And that could provide fuel for BTC to test at least 21.4k short-term," part of a tweet read.
"Tedtalksmacro added that a squeeze was already "well underway" based on Bitcoin's bounce off multi-week lows beneath the $20,000 mark.
Other popular market participants favored a return to downside in the short term.
"Amongst the madness today, Bitcoin remains good. I am anticipating another drop down to the interim support zone around $19,200," Crypto Tony told followers.
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